Political Minefield

A holiday in the US left the current political minefield front and centre overnight.

With the US markets closed for the Martin Luther King Day holiday, markets were very quiet once again. With the big events kicking off today we are likely to see a return of increased volatility as the week progresses.

The lack of market action left the current political minefield firmly in the spotlight. While the Sunday Times report on the upcoming Brexit speech from the UK Prime Minister Theresa May started to fade, Donald Trump continued to rollout enough headline grabbers to fill an entire newspaper.

The latest sector to fell the wrath of a Trump zinger was German car makers. In an interview overnight while speaking about German car makers who build cars for the US market, Trump was quoted as saying “every car that comes to the USA, you will pay 35% tax.” He then had another crack at Mexico saying that “I would tell BMW that if you are building a factory in Mexico and plan to sell cars to the USA, without a 35% tax, then you can forget that.”

This is important because these dribs and drabs of potential policy changes are having a real world impact with the share prices of a number of German car makers getting hit hard overnight after the comments.

His blunt approach to international relations has continued with Trump naming NATO “obsolete” and that he is happy to do a bilateral trade agreement with the UK. He also had a pop at Germany, saying that the EU is a “vehicle for Germany” and has predicted that more countries will follow the UK.

Friday’s inauguration can’t come quick enough as it will hopefully see Trump lay out some concrete plan he intends on pursing with congress in his first 100 days. At the moment there is so much being thrown around, much of it contradictory, that it is actually undermining confidence in his ability to put a comprehensive action plan in place.

David Flanagan

Director Interest Rate Markets